How to do seller financing

Question

Hi! My husband and I have reached our limit on traditional mortgages and of course have a new property we’d like to purchase.

I understand the basic concept of seller financing, but would love some resources/advice on how to actually make it happen. Thank you!

Steve Vaughan · Answer

All of my SF purchases have been from tired landlords.
I offered with a simple 3 scenario letter of intent. Generic SF is one scenario. If they have interest in being the bank, we discuss further.
A regular PSA is submitted like normal with a method of payment or SF addendum. It's submitted to title like normal.

Title has their network attorney draft the docs.   Avoid land contracts and contracts for deed.

Jared Prevost · Answer

@Rebecca Coleman As far as logistically executing a seller finance deal, I think one aspect that regularly gets overlooked is how the payments will actually be made.

When of the most common objections from sellers (especially tired landlords) goes something like this, "That sounds great and all, but I don't want to be running around collecting checks like it's rent. I might as well continue to be a landlord!"

So how do you address this objection AND make your life easier? I recommend setting up an escrow account or a direct deposit account with the seller so the money gets deposited directly so it's truly passive income. That will also help you keep accounting records of the payment for if/when you eventually sell or refinance.

Crystal Smith · Answer

We usually provide a letter of intent with multiple options to purchase, where one of the options is seller financing, in lieu of just offering seller financing on its own.  Our letter of intents will usually use include a cash offer; seller finance offer (interest only); seller finance offer (amortized); Lease/option (this is market dependent).  We'll make the offer price more on the seller finance; than the cash offer.

Regarding reaching the limit on traditional mortgages- I assume you mean Fannie Mae backed loans.  It may be time to go to the private money lenders where there are no limits on the number of loans.

Gabriel Kinser · Answer

If seller financing is your only finance option, I recommend targeting owners who are open to it rather than targeting conventional sellers and trying to convince them. Things may be different elsewhere but in my local market, the county assessor's website specifies the sales "instrument" of each historical sale i.e. deed vs contract. Searching for sales conveyed by contract will show sellers who have done owner financing before and are likely to be open to it again. Find those sellers in your target market and see what if anything they would sell and finance for you or if they know anyone else with properties that could be bought on owner finance!

Wale Lawal · Answer

@Rebecca Coleman

Seller financing presents upsides and downsides to home buyers and sellers alike. With these agreements, purchasers with lower credit scores or incomes may be able to obtain loans that they could not have been approved for otherwise.At the same time, the interest rate that a seller may charge can often exceed that charged by a traditional mortgage lender. So, while seller financing can open up more possibilities to aspiring home buyers when it comes to real estate transactions (and potentially provide home sellers with added investment opportunities and tax savings), it won’t make sense to utilize in every case.To learn more about seller financing and whether it’s ideal for you, research and consult with a qualified professional such as a real estate attorney before entering into an agreement.Review the terms and conditions of any owner financing contract, too – they may vary greatly between agreements as well. Crunch the numbers to see if upfront savings on a property purchase made in this fashion may cost you more in the end.

All the best!

Wale Lawal · Answer

@Rebecca Coleman

Just like a conventional mortgage, owner financing involves making a down payment on property and paying off the rest over time. That said, this alternative to traditional financing is typically more expensive and requires repayment or refinancing into a traditional loan in as little as five years. Still, seller financing is usually faster and easier to get than a government-backed mortgage—if the seller is willing and able to provide it.And, while most owner financing requires some form of background or credit check, it can help otherwise unqualified borrowers achieve homeownership. Not only are there no banks or traditional lenders involved, owner financing doesn’t necessitate an inspection or appraisal unless the buyer wants them.Once a buyer and seller agree to terms, monthly payments are made to the owner-seller according to an agreed-upon amortization schedule. Depending on that schedule, the borrower also may face a large lump-sum payment at the end of the loan term. Unlike traditional mortgages, however, tax and insurance payments generally are not rolled into monthly debt service, and the buyer must make them directly.At the end of the loan term, the buyer either makes the balloon payment or obtains a mortgage refinance and pays off the sellers with the proceeds of a new loan. Depending on how the owner financing was originally structured, the buyer will get title to the property for the first time or the seller will execute a Satisfaction of Mortgage indicating the mortgage has been paid in full and releasing the lien on the property.

All the best!

Joe Schiller · Answer

Price and terms.  Is the carry worth the return.  If you are at a limit with the banks and you do not want to take on additional investors such as a partner in each deal who has a 5% share of the transaction you can find property that is not able to be collateralized because  of poor condition and incomplete improvements so the seller has no choice ..or .. someone who wants a premium price and it will not appraise .

Eliott Elias · Answer

What specific question do you have?

How to do seller financing

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